Standardising Responsible Islamic Finance: A Review of Green, Social and Sustainability Sukuk
Dr. Edana Richardson
Lecturer – Assistant Professor – Maynooth University – Ireland
Growing global interest in innovative financing tools that bridge the divide between traditional financing and responsible investing has, until relatively recently, remained largely distinct from market interest in the Islamic finance sector. Guided by socially motivated goals and investors and displaying a greater emphasis on societal impact than traditional finance, the responsible finance sector has grown in size and visibility within the conventional finance space. In line with this trend, the capital markets have seen a growth in the number of issuances of green, social and sustainability bonds. These capital markets instruments provide investors with an opportunity to pursue both societal and financial returns in their investment activity. They also provide issuers with additional liquidity and an opportunity to bolster their corporate social responsibility agenda.
The emphasis on financial and non-financial considerations in conventional responsible finance has led to suggestions that there are clear similarities between responsible finance and Islamic finance. It has not been until recently, however, that the sukuk market has sought to establish its place within the wider responsible finance market. This has led to debut issuances of green, social and sustainability sukuk.
With growing interest in responsible finance comes a need to consider the development of standards within the responsible finance bond and responsible finance sukuk market sectors. The objective of this article is, therefore, to consider relevant standards and parameters developed in the conventional and Islamic responsible finance industries, and to reflect upon any growing convergence between the standards applicable to, and practices within, these market sectors. In doing so, it will situate and discuss the development of responsible finance sukuk in the international capital markets and, using a case study as a guide, this article will analyse how concepts of responsibility have been reflected in contemporary Islamic finance sukuk issuances and the measures that issuers have put in place to verify the responsible credentials of an issuance.
Keywords: Islamic finance; responsible finance; sukuk; bonds; green; social; sustainability.